Delay on Extensions for Solar Energy Incentives and the R&D Tax Credit

SEMI Concerned with Delay on Extensions for Solar Energy Incentives and the R&D Tax Credit

Washington, D.C. (June 17, 2008)—In May, the House of Representatives passed a “tax extenders” legislative package with bipartisan support by a vote of 263-160. Among the many provisions, the bill would extend tax incentives for renewable energy sources—including solar energy—that are set to expire at the end of this year. The bill would also extend the R&D tax credit, which expired on December 31, 2007.

Recently, in the Senate, the bill ran into a philosophical logjam. The major issue of disagreement is how to “offset” the costs of the tax incentives. The bill would provide tax relief to some while increasing taxes on others to cover the costs, which many Senate Republicans opposed. During a procedural motion, the bill fell 10 votes short of the 60 needed (vote of 50-44) to move forward to debate on the $120 billion package.

SEMI strongly supports an extension of the solar energy investment tax credit (ITC) for businesses. Solar energy is a developing market and many other countries are seizing the opportunity to be the market leaders. The United States will be a user of solar energy. The question is, “Will we also be a producer of it?” The solar energy ITC encourages investment in the technology, which will in turn help generate production in the United States.

Several hundred leading companies wrote Congress recently warning that failure to act quickly could bring investment projects to a standstill. Apple Inc., Boeing Company, General Electric Corporation, and Intel Corporation were some of the companies who wrote that "failure to act this summer on tax extender legislation will have significant negative consequences for the U.S. economy."

Many groups—including Semiconductor Equipment and Materials International (SEMI), American Electronics Association (AeA), Semiconductor Industry Association (SIA), Business Software Alliance, Biotechnology Industry Association, Information Technology Association of America, and Information Technology Industry Council (ITI)—advocate for a strengthened R&D tax credit, which is critical in maintaining the United States as the global technology and innovation leader. "The credit for us is really a jobs issue," said Jay Timmons, senior vice president for policy at the National Association of Manufacturers, “The bottom line is, it's about keeping high-skilled, high-wage jobs in the United States."

The R&D tax credit regularly expires every couple of years. This is unfortunate because thousands of companies in many industries are faced with increased competition from abroad where they receive generous tax breaks. Other countries have grasped the importance of the R&D tax credits and are trying to lure companies away from the U.S. with more generous R&D programs. Newspaper advertisements from Canada and other countries tout their R&D tax incentives to U.S. companies. According to the R&D Credit Coalition, “In 2003, U.S. majority-owned affiliates invested $22.3 billion in R&D in foreign countries, up from $15.0 billion invested in 1998–a 49% jump. By comparison, spending on R&D in the United States by U.S. parent companies rose more slowly (by 23%) over this period, from $114.2 billion to $140.1 billion.”

SEMI has long urged Congress to make the R&D tax permanent, but the difficulty of a permanent extension is due to the cost, which is estimated at a price tag of about $7 billion a year. In 1981, the United States was the first country to enact a tax credit for R&D. By 2004, the United States has to fallen drastically to a rank of 17 out of the 30 member nations of the Organization for Economic Co-operation and Development.

“Other countries are trying to displace the U.S. as a technology leader by offering huge tax subsidies and tax incentives, and by investing billions of dollars in research,” said Vicki Hadfield, President, SEMI North America. Christopher Hansen, AeA’s president and CEO, stated, "If the U.S. does not guarantee similar incentives, we will continue to see R&D activities, innovation and jobs moving offshore.”